CONCORD COALITION WARNS AGAINST SURPLUS “EXPECTATIONS” GAME

WASHINGTON -- The
Concord Coalition today warned lawmakers not to treat the new surplus projections to be
issued this week by the Congressional Budget Office (CBO) as money in the bank. The
existence and size of projected budget surpluses, particularly over a 10-year period, is
far too speculative to serve as a reliable source of financing for major tax cuts or
entitlement expansions.

“New Hampshire and Iowa aren't the only
places where the expectations game is being played this week. Politicians in Washington are using the
expectation of perpetual budget surpluses to promise everything from tax cuts and a
Medicare prescription drug benefit to elimination of the public debt and a cost-free
solution to Social Security's long-term cash shortfall,” said Concord Executive
Director Robert Bixby.

“Politicians who
play this expectations game are going out on a limb that is only as strong as the accuracy
of 10-year budget projections ¾ a fiscally dangerous proposition. Given the
volatility of budget projections,it is
important not to confuse expectations with certainties.
The CBO baseline is not a lottery payout.
It is simply a good faith estimate of what is likely to happen under current
economic and policy assumptions. Small
deviations from these assumptions can markedly alter the total projection over a 10-year
period,” Bixby said.

The Coalition reiterated its
long-held position that the highest priority for any surpluses that do materialize is to
help prepare the economy for the demographic tidal wave, which will begin to manifest
itself by the end of the current 10-year budget window.
“The Baby Boomers will begin to collect Social Security retirement benefits in
2008, and will qualify for Medicare in 2011. Neither program is fiscally sustainable in
its current form. Until we have dealt with that fundamental problem, we should save every
surplus dollar that comes our way,” Bixby said.

Concord advised that the new surplus
projections should be assessed in light of the following questions:

·
How much of the
projected surplus comes from the legally off-budget Social Security surplus, which both parties have pledged to protect?

·
How much of the
on-budget (non-Social Security) surplus comes in the second five years of the projection
period, when the uncertainty factor is much higher?

·
How much of the
on-budget surplus is attributable to the unlikely assumption that policy makers will
adhere to the discretionary spending caps or freeze spending at this year's level?

·
How much lower
would the on-budget surplus be if it were assumed that emergency spending continues at its
current level?

·
How much lower
would the on-budget surplus be if it were not assumed that the entire surplus is devoted
to debt reduction?

·
How much lower
would the on-budget surplus be if the economy slows more than is assumed, or if interest
rates go up by more than anticipated?

The
Concord Coalition was founded in 1992 by former Senator Warren Rudman (R-N.H.), the late
Paul Tsongas, former Democratic Senator from Massachusetts, and former Secretary of
Commerce Peter Peterson. Former Senator Sam
Nunn (D-Ga.) joined Rudman as co-chair of the organization in 1997. The Concord Coalition is a nonpartisan, grass
roots organization dedicated to balanced federal budgets and generationally responsible
fiscal policy.